Date of issue: 22nd September 2004

ADDED RED TAPE OVER NEW VAT AVOIDANCE RULES

A Birmingham firm of chartered accountants is concerned that new rules governing the notification of VAT Avoidance Schemes will just bring extra administrative work for SMEs which are already labouring with red tape.

Clement Keys, Birmingham says SMEs need to be aware of the new VAT (Disclosure of Avoidance Schemes) Regulations 2004 which came info force last month, as they make it a legal requirement for anyone using VAT Avoidance Schemes to notify details to Customs and Excise.

Schemes are either 'Listed' or 'Hallmarked' and must be notified to the new VAT Avoidance Disclosures Unit within 30 days of the due date of the VAT return or the date of making a claim. All schemes disclosed to Customs and Excise will, where necessary, be investigated and challenged in the usual way.

Eight Listed VAT Avoidance Schemes are described in the new rules and businesses with a turnover of more than £600,000 must notify if they are involved in such a scheme. Hallmarked Schemes contain at least one of the provisions specified in the legislation and must be declared by companies whose turnover exceeds £10m, if their chief reason for adopting the scheme is to obtain a tax advantage.

Businesses which fail to comply with these new rules will be liable for a penalty of 15% of the VAT saved in respect of Listed Schemes or a flat fine of £5,000 for Hallmarked Schemes.

"These new regulations could hit small businesses very hard, as they are expected to know that they are using a Listed VAT Avoidance Scheme and that has to be registered and they could incur a major fine through no fault of their own," says Steven Simmonds, VAT Director at Clement Keys, Birmingham.

"Large companies are only risking a £5,000 penalty for non-disclosure of Hallmarked Schemes which will not worry them unduly as these firms have multi-million pound turnovers and the fine is, relatively speaking, a drop in the ocean."

Examples of VAT Avoidance Schemes include Payment Handling Services, which aim to reduce the VAT paid on the sale of goods or services where the method of payment is by credit/debit card and Value Shifting, whereby part of the ticket price for a freezer or washing machine is allocated to insurance cover if the customer agrees to take out such cover, although there is no discount given if the customer declines the insurance.